Australian industry steels itself for renewable energy transition

A move into renewable energy for a steelworks in South Australia shows business is ready for change, writes Clean Energy Council executive general manager of industry development Natalie Collard.

Household solar power already makes enough sense that around 1.6 million homes have installed it to help reduce their electricity bills. Many small, medium and large businesses are eagerly embracing it as well. But we are now pushing back another frontier – the use of renewable energy in industrial processes.

Global group GFG Alliance believes renewables already make sense for industrial processes in Australia, and its British billionaire leader Sanjeev Gupta is certainly not going to die wondering whether it can work. The company bought the Whyalla steelworks this year and has taken majority ownership of renewable energy company Zen Energy as well. It announced plans in October to power the steelworks using a combination of solar, batteries and pumped hydro built in a disused iron ore pit.

“Electricity costs are now at astronomically high levels … to beat these prices is not difficult,” Gupta told the ABC’s Radio National Breakfast program in October.

This could be the start of something big. GFG Alliance is also considering similar moves with its other steelworks operations on the east coast in Sydney, Melbourne and Newcastle – operations it says are much bigger users of energy than the facility in Whyalla.

Ultimately we could be looking at a huge shift in the way large electricity users do business, not least because Zen and GFG Alliance believe they will be able to expand the solar and storage operation at Whyalla to such an extent that they can sell extra electricity to big energy users in the region.

We have already seen other companies looking at doing things genuinely differently this year. Neoen will build a large wind farm backed by energy storage for Nectar Farms as part of a $565 million expansion of its hydroponics business in Victoria. And Telstra has signed a deal to buy power from a 70MW solar farm in North Queensland, a corporate arrangement which is still relatively new in Australia but well established in the United States and elsewhere.

These examples are just the beginning, and many small and medium-sized businesses have installed solar systems to reduce their exposure to volatile power prices.

Power hikes are a gas

GFG and Zen are taking on the weight of risk that comes with being a pioneer. If they show that it pays off, there will be plenty of others who follow in their footsteps. But it was clear something had to give. Any business which has come off a long-term contract for electricity or gas lately will testify that the game has completely changed over the last few years. The big difference is the price of gas, which has risen massively for companies in Australia since we started sending our gas offshore to the highest bidder.

Many home-owners talk about bill shock but businesses in some cases are re-negotiating contracts for electricity that are triple what they used to pay – and for operations that use lots of energy these were not small costs to begin with. Some have elected to play on the spot market for wholesale electricity rather than sign up for expensive new contracts. These are often the businesses who go to the media when the price suddenly leaps and they have nowhere else to go but to take the pain.

As GFG Alliance has demonstrated, if you can build a renewable energy plant with storage that will deliver electricity for substantially less than you can get it at either a contract price or on the wholesale electricity market, it should be worth your while. But there’s also the question of payback, because most of the cost of energy independence is in becoming, well, independent. That does mean a significant upfront infrastructure cost which will pay itself off over time, although leasing and other arrangements can make this kind of idea much less daunting.

Transition won’t happen by itself

Bloomberg New Energy Finance said earlier in the year that cheap renewable energy will be a feature of doing business in Australia in the decades to come. Low-cost wind, solar and bioenergy with storage will attract big energy users from overseas to a country with world-class wind and solar and rock bottom energy prices.

It is blatantly obvious that we are not there yet. Anyone who doesn’t have their own solar power system is unlikely to use a word such as “cheap” when they open up their power bill.

To get from where we are now to this low-cost renewable energy future will not just happen. GFG Alliance’s Sanjeev Gupta said that as confident as the company is that renewables have a major role to play in its industrial operations, some kind of policy is required as an incentive for the energy system to transition.

The grinding and complex political debate that has shifted from carbon pricing and emissions trading to an emissions intensity scheme, a Clean Energy Target and a National Energy Guarantee shows that getting national energy and climate policy in place is not easy. But it remains important to provide strong signals to investors that they will not have the rug whipped out from under them after they have made investments in the economy worth hundreds of millions of dollars.

Whether there is any prospect of delivering this before the next election is anyone’s guess. But we need to keep trying.